UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q



            X    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
         -------
                 THE SECURITIES EXCHANGE ACT OF 1934

                      For the quarterly period ended June 30, 2003

                     TRANSITION REPORT PURSUANT TO SECTION 13 OR
         ---------
                 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                        For the transition period from to

                         Commission file number 1-14762

                            THE SERVICEMASTER COMPANY
             (Exact name of registrant as specified in its charter)

        Delaware                                            36-3858106
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)

3250 Lacey Road, Ste. 600, Downers Grove, Illinois             60515-1700
(Address of principal executive offices)                       (Zip Code)

                                  630-663-2000
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No .

Indicate the number of shares outstanding of each of the issuer's classes of
common stock: 295,035,000 shares of common stock on August 5, 2003.



<PAGE>







                                TABLE OF CONTENTS

                                                                            Page
                                                                             NO.

THE SERVICEMASTER COMPANY (Registrant) -

PART I.  FINANCIAL INFORMATION

Item 1:  Financial Statements

Condensed Consolidated Statements of Income for the three and six
   months ended June 30, 2003 and June 30, 2002                                3

Condensed Consolidated Statements of Financial Position
   as of June 30, 2003 and December 31, 2002                                   4

Condensed Consolidated Statements of Cash Flows for the six months
   ended June 30, 2003 and June 30, 2002                                       5

Notes to Condensed Consolidated Financial Statements                           6

Item 2: Management Discussion and Analysis of Financial
   Condition and Results of Operations                                        12

Item 3:  Quantitative and Qualitative Disclosures About Market Risk           19

Item 4: Controls and Procedures                                               20


PART II.  OTHER INFORMATION

Item 4:  Submission of Matters to a Vote of Security Holders                  21

Item 6:  Exhibits and Reports on Form 8-K                                     21

Signature                                                                     23




<PAGE>













                          PART I. FINANCIAL INFORMATION

                            THE SERVICEMASTER COMPANY
             CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
                                                                       Three Months Ended           Six Months Ended
                                                                            June 30,                      June 30,
                                                                      2003           2002           2003           2002
                                                                 -------------  -------------  -------------  -------------
<S>                                                               <C>            <C>            <C>            <C>
OPERATING REVENUE .............................................   $ 1,052,629    $ 1,034,937    $ 1,786,294    $ 1,769,200

OPERATING COSTS AND EXPENSES:
Cost of services rendered and products sold ...................       679,241        680,381      1,217,160      1,211,192
Selling and administrative expenses ...........................       247,086        217,728        416,331        379,330
Amortization expense ..........................................         1,722          2,152          3,362          4,306
                                                                  -----------    -----------    -----------    -----------
Total operating costs and expenses ............................       928,049        900,261      1,636,853      1,594,828
                                                                  -----------    -----------    -----------    -----------

OPERATING INCOME ..............................................       124,580        134,676        149,441        174,372

NON-OPERATING  EXPENSE (INCOME):
Interest expense ..............................................        16,655         37,107         32,938         59,648
Interest and investment income.................................        (3,125)        (1,966)        (4,344)        (4,898)
Minority interest and other expense, net.......................         2,046          2,014          4,118          3,584
                                                                  -----------    -----------    -----------    -----------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES .........       109,004         97,521        116,729        116,038
Provision for income taxes ....................................        42,817         35,313         45,867         41,972
                                                                  -----------    -----------    -----------    -----------

INCOME FROM CONTINUING OPERATIONS .............................        66,187         62,208         70,862         74,066
Income (loss) from discontinued operations, net of income taxes          (637)           295           (637)            78
                                                                  -----------    -----------    -----------    -----------
NET INCOME ....................................................   $    65,550    $    62,503    $    70,225    $    74,144
                                                                  ===========    ===========    ===========    ===========


PER SHARE:
BASIC EARNINGS PER SHARE:
Income from continuing operations..............................         $0.22          $0.21          $0.24          $0.25
Discontinued operations, net  .................................             -              -              -              -
                                                                  -----------    -----------    -----------    -----------
                                                                        $0.22          $0.21          $0.24          $0.25
                                                                  ===========    ===========    ===========    ===========
SHARES                                                                296,819        301,092        297,307        300,653


DILUTED EARNINGS PER SHARE:
Income from continuing operations..............................         $0.22          $0.20          $0.24          $0.24
Discontinued operations, net  .................................             -              -              -              -
                                                                  -----------    -----------    -----------    -----------
                                                                        $0.22          $0.20          $0.23          $0.24
                                                                  ===========    ===========    ===========    ===========
SHARES                                                                308,947        316,474        301,188        307,700

Dividends per share............................................        $0.105          $0.10          $0.21          $0.20
                                                                  ===========    ===========    ===========    ===========

</TABLE>






                  SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




                                       3
<PAGE>


                            THE SERVICEMASTER COMPANY
       CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
                                                                   As of June 30,    As of Dec 31,
ASSETS                                                                  2003             2002
                                                                   --------------   --------------
CURRENT ASSETS:
<S>                                                                 <C>              <C>
Cash and cash equivalents .......................................   $   101,553      $   227,409
Marketable securities ...........................................        95,893           75,194
Receivables, less allowance of $31,122 and $27,616, respectively        397,643          332,186
Inventories .....................................................        82,520           67,748
Prepaid expenses and other assets ...............................        57,568           39,464
Deferred customer acquisition costs .............................        66,434           48,419
Deferred taxes and income taxes receivable ......................       114,996          123,100
Assets of discontinued operations ...............................         1,342            5,654
                                                                    -----------      -----------
       Total Current Assets .....................................       917,949          919,174
                                                                    -----------      -----------
PROPERTY AND EQUIPMENT:
At cost .........................................................       413,464          413,939
Less: accumulated depreciation ..................................      (228,331)        (219,062)
                                                                    -----------      -----------
  Net property and equipment ....................................       185,133          194,877
                                                                    -----------      -----------

OTHER  ASSETS:
Goodwill ........................................................     1,945,205        1,919,780
Intangible assets, primarily trade names ........................       252,090          257,781
Notes receivable ................................................        56,451           55,770
Long-term securities and other assets ...........................        79,784           67,556
                                                                    -----------      -----------
       Total Assets .............................................   $ 3,436,612      $ 3,414,938
                                                                    ===========      ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable ................................................   $    91,997      $    92,121
Accrued liabilities:
   Payroll and related expenses .................................        79,878           99,504
   Self-insured claims and related expenses .....................        85,556           84,521
   Other ........................................................       108,483          102,380
Deferred revenues ...............................................       433,785          397,290
Liabilities of discontinued operations ..........................        15,976           32,113
Current portion of long-term debt ...............................        30,213           31,135
                                                                    -----------      -----------
       Total Current Liabilities ................................       845,888          839,064
                                                                    -----------      -----------

LONG-TERM DEBT ..................................................       796,627          804,340

LONG-TERM LIABILITIES:
Deferred taxes ..................................................       345,087          312,500
Liabilities of discontinued operations ..........................        28,800           28,800
Other long-term obligations .....................................       125,799          111,225
                                                                    -----------      -----------
   Total Long-Term Liabilities ..................................       499,686          452,525
                                                                    -----------      -----------

MINORITY INTEREST ...............................................       100,309          100,309

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Common stock $0.01 par value, authorized 1 billion shares; issued
     316,399 and 316,024 shares, respectively ...................         3,164            3,160
Additional paid-in capital ......................................     1,052,879        1,054,272
Retained earnings ...............................................       363,303          355,893
Accumulated other comprehensive income (loss) ...................         4,267             (849)
Restricted stock ................................................        (4,682)          (1,988)
Treasury stock ..................................................      (224,829)        (191,788)
                                                                    -----------      -----------
       Total Shareholders' Equity ...............................     1,194,102        1,218,700
                                                                    -----------      -----------
       Total Liabilities and Shareholders' Equity ...............   $ 3,436,612      $ 3,414,938
                                                                    ===========      ===========
</TABLE>

            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



                                    4
<PAGE>





                            THE SERVICEMASTER COMPANY
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>

                                                                                Six Months Ended
                                                                                     June 30,
                                                                                2003         2002
                                                                              ---------    ---------
<S>                                                                           <C>          <C>
CASH AND CASH EQUIVALENTS AT JANUARY 1 ....................................   $ 227,409    $ 402,644

CASH FLOWS FROM OPERATIONS:
NET INCOME ................................................................      70,225       74,144
     Adjustments to reconcile net income to net cash flows from operations:
        (Income) loss from discontinued operations ........................         637          (78)

        Depreciation expense ..............................................      25,336       24,291
        Amortization expense ..............................................       3,362        4,306
        Deferred income tax expense .......................................      39,738       39,758

         Change in working capital, net of acquisitions:
            Receivables ...................................................     (67,727)     (59,876)
            Inventories and other current assets ..........................     (47,739)     (62,160)
            Accounts payable ..............................................      (2,223)       4,590
            Deferred revenues .............................................      38,154       84,625
            Accrued liabilities ...........................................      (3,282)      22,179
            Other, net ....................................................       1,554       11,394
                                                                              ---------    ---------
NET CASH PROVIDED FROM OPERATIONS .........................................      58,035      143,173
                                                                              ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Property additions ..................................................     (21,399)     (29,387)
      Sale of equipment and other assets ..................................       7,794        1,140
      Business acquisitions, net of cash acquired .........................     (16,630)      (6,849)
      Notes receivable, financial investments and securities ..............     (20,173)      (4,228)
                                                                              ---------    ---------
NET CASH USED FOR INVESTING ACTIVITIES ....................................     (50,408)     (39,324)
                                                                              ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Net payments of debt ................................................     (15,256)    (295,570)
      Purchase of ServiceMaster stock .....................................     (48,975)          --
      Shareholders' dividends .............................................     (62,815)     (59,598)
      Other, net ..........................................................       6,399       12,825
                                                                              ---------    ---------
NET CASH USED FOR FINANCING ACTIVITIES ....................................    (120,647)    (342,343)
                                                                              ---------    ---------

CASH USED FOR DISCONTINUED OPERATIONS .....................................     (12,836)     (31,406)
                                                                              ---------    ---------

CASH DECREASE DURING THE PERIOD ...........................................    (125,856)    (269,900)
                                                                              ---------    ---------

CASH AND CASH EQUIVALENTS AT JUNE 30 ......................................   $ 101,553    $ 132,744
                                                                              =========    =========


</TABLE>


                  SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       5
<PAGE>





                            THE SERVICEMASTER COMPANY
                  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1: The condensed  consolidated financial statements include the accounts of
ServiceMaster and its subsidiaries,  collectively  referred to as "the Company".
Intercompany transactions and balances have been eliminated in consolidation.

NOTE 2: The condensed  consolidated  financial  statements have been prepared by
the Company in accordance with accounting  principles  generally accepted in the
United States (GAAP) and pursuant to the rules and regulations of the Securities
and Exchange  Commission.  The Company  suggests  that the  quarterly  condensed
consolidated  financial  statements be read in conjunction with the consolidated
financial  statements  and the notes thereto  included in the  Company's  latest
Annual  Report to  Shareholders  and the  Annual  Report to the  Securities  and
Exchange  Commission  on Form 10-K for the year ended  December  31,  2002.  The
condensed consolidated financial statements reflect all adjustments,  which are,
in the  opinion  of  management,  necessary  for the  fair  presentation  of the
financial  position,  results  of  operations  and cash  flows  for the  interim
periods.  The results of operations for any interim  period are not  necessarily
indicative of the results which might be achieved for a full year.

NOTE 3: The Company has identified the most important  accounting  policies with
respect to its  financial  position  and  results of  operations.  These  relate
primarily to revenue recognition and the deferral of customer acquisition costs.
The following  revenue  recognition  policies  have not changed since  year-end.
Revenues  from  lawn  care,   pest  control,   liquid  and  fumigation   termite
applications,  as well as  heating/air  conditioning  and plumbing  services are
recognized as the services are provided.  Revenues from landscaping services are
recognized as they are earned based upon agreed monthly contract arrangements or
when services are performed for non-contractual arrangements.  Revenues from the
Company's  commercial  installation  contracts,  primarily  relating to heating,
ventilation  and air  conditioning  (HVAC),  are recognized on the percentage of
completion method in the ratio that total incurred costs bear to total estimated
costs. The Company eradicates  termites through the use of baiting stations,  as
well as through  non-baiting  methods  (e.g.,  fumigation or liquid  treatment).
Termite  services  using  baiting  stations  as well as home  warranty  services
typically are sold through  annual  contracts for a one-time,  upfront  payment.
Direct costs of these contracts  (ongoing service costs for termite  completions
and claim costs for warranty  contracts)  are expensed as incurred.  The Company
recognizes  revenue  over the  life of  these  contracts  in  proportion  to the
expected  direct  costs.  Revenue  from trade  name  licensing  arrangements  is
recognized when earned.  Franchised  revenues (which in the aggregate  represent
approximately  three percent of  consolidated  revenue)  consist  principally of
continuing monthly fees based upon the franchisee  revenue.  Monthly fee revenue
is recognized when the related franchise revenue is reported from the franchisee
and  collectibility is assured and all material services or conditions  relating
to the sale  have been  substantially  performed.  Total  franchise  fee  income
(excluding  trade name  licensing)  represented  8.8  percent and 7.3 percent of
consolidated operating income for the three months ended June 30, 2003 and 2002,
respectively and 13.2 percent and 10.5 percent for the six months ended June 30,
2003 and 2002,  respectively.  The portion of total franchise fee income related
to initial fees  received  from the sale of a franchise  were  immaterial to the
Company's consolidated financial statements for all periods.

Customer  acquisition costs, which are incremental and direct costs of obtaining
the  customer,  are  deferred  and  amortized  over the life of the  contract in
proportion to revenue  recognized.  These costs include  sales  commissions  and
direct selling costs which can be shown to have resulted in a successful sale.

TruGreen ChemLawn has significant seasonality to its business. In the winter and
early spring,  this business  sells a series of lawn  applications  to customers
which are rendered  primarily in March through  October.  The Company incurs and
defers  incremental  selling expenses at the beginning of the year that directly
relate to  successful  sales for which the revenues  will be recognized in later
quarters. This business also defers, on an interim basis, pre-season advertising
costs and annual repairs and  maintenance  procedures  that are performed in the
first  quarter.  These  costs  are  deferred  and  recognized  approximately  in
proportion  to the contract  revenue  over the  production  season,  and are not
deferred beyond the calendar year-end.


                                       6
<PAGE>


As noted  above,  TruGreen's  pre-season  advertising  costs  are  deferred  and
recognized  approximately  in proportion to the contract  revenue over the year.
Terminix also defers its  advertising  costs in the first quarter and recognizes
the expense  over the year.  These costs are not  deferred  beyond the  calendar
year-end. The cost of direct-response advertising at Terminix is capitalized and
amortized  over its expected  period of future  benefits.  This  direct-response
advertising consists primarily of direct-mail promotions,  for which the cost is
capitalized and amortized over the one-year customer contract life.

The preparation of the financial  statements requires management to make certain
estimates and assumptions  required under GAAP which may differ  materially from
the  actual  results.  Disclosures  in the  2002  Annual  Report  presented  the
significant  areas that require the use of management's  estimates and discussed
how management formed its judgment.  The areas discussed  included the allowance
for receivables,  accruals for self-insured retention limits related to medical,
workers compensation, auto and general liability insurance, the possible outcome
of litigation and the useful lives for depreciation and amortization expense and
the valuation of tangible and  intangible  assets.  In 2003,  there have been no
changes in the significant areas that require estimates or in the methodologies.

NOTE 4: The  Company  carries  insurance  policies on  insurable  risks which it
believes to be appropriate.  The Company  generally has  self-insured  retention
limits and has obtained fully insured layers of coverage above such self-insured
retention  limits.  Accruals  for  self-insurance  losses  are made based on the
Company's claims experience and actuarial  assumptions.  The Company has certain
liabilities with respect to existing or potential  claims,  lawsuits,  and other
proceedings.  The Company accrues for these liabilities when it is probable that
future costs will be incurred and such costs can be reasonably estimated.

NOTE 5: In accordance with Statement of Financial  Accounting  Standards  (SFAS)
142,  "Goodwill  and  Other  Intangible  Assets,"  the  Company's  goodwill  and
indefinite  lived  intangible  assets  are not  being  amortized.  Goodwill  and
intangible  assets  that are not  amortized  are  subject  to at least an annual
assessment  for  impairment  by applying a fair-value  based test.  In the first
quarter,  the Company  reviewed  its  intangible  balances and removed the fully
amortized  assets as well as the related  accumulated  amortized  balance on the
financial  statements.  During this process  certain  reclassifications  between
categories were made. The following table summarizes the goodwill and intangible
asset balances:


(IN THOUSANDS)                                 As of                As of
                                             June 30,           December 31,
                                               2003                 2002
                                           ---------------    --------------
Goodwill (1)                                  $1,945,205        $1,919,780
Trade names (1)                                  238,550           238,550

Other intangible assets                           43,458            78,284
Accumulated amortization (2)                     (29,918)          (59,053)
                                           ---------------    --------------
Net other intangibles                             13,540            19,231
                                           ---------------    --------------
Total                                         $2,197,295        $2,177,561
                                           ===============    ==============

(1)  Not  subject  to   amortization.
(2)  Annual amortization expense of approximately $7 million in 2003 is expected
     to decline over the next five years.

The table below presents, by segment, the goodwill that is not subject to
amortization:

(IN THOUSANDS)                           June 30,            December 31,
                                           2003                  2002
                                     ------------------    ------------------
TruGreen                                     $803,548              $780,043
Terminix                                      619,300               618,055
American Home Shield                           72,085                72,085
ARS/AMS                                       337,491               337,491
Other Operations                              112,781               112,106
                                     ------------------    ------------------
Total                                      $1,945,205            $1,919,780
                                     ==================    ==================



                                       7
<PAGE>


NOTE 6: Basic  earnings  per share is computed by dividing  income  available to
common stockholders by the weighted-average number of shares outstanding for the
period.  The  weighted-average  common shares for the diluted earnings per share
calculation includes the incremental effect related to outstanding options whose
market price is in excess of the exercise  price.  Shares  potentially  issuable
under  convertible  securities have been  considered  outstanding in the diluted
earnings  per share  calculations  if their  impact is  dilutive.  In  computing
diluted  earnings  per  share,   the  after-tax   interest  expense  related  to
convertible  debentures is added back to net income in the numerator,  while the
diluted shares in the denominator include the shares issuable upon conversion of
the debentures.  Shares potentially  issuable under convertible  securities have
not been  included in the diluted  earnings  per share  calculation  for the six
months  ended June 30, 2003 and 2002,  respectively,  as their effect would have
been anti-dilutive.

The following  table  reconciles  both the numerator and the  denominator of the
basic earnings per share from continuing operations computation to the numerator
and the denominator of the diluted earnings per share from continuing operations
computation.
<TABLE>


(IN THOUSANDS, EXCEPT PER SHARE DATA)                    Three Months                          Three Months
                                                     Ended June 30, 2003                   Ended June 30, 2002
                                               --------------------------------       ------------------------------
CONTINUING OPERATIONS:                          INCOME       SHARES      EPS           INCOME      SHARES     EPS
----------------------                         --------     --------   ------         --------    --------   ----
<S>                                              <C>        <C>         <C>            <C>        <C>        <C>
 Basic earnings per share                        $66,187    296,819     $0.22          $62,208    301,092    $0.21
                                                                       ======                                =====
 Effect of dilutive securities, net of tax:
  Options                                                     3,928                                 7,182
  Convertible securities                           1,195      8,200                      1,195      8,200
                                               ----------   ---------                 ----------  ---------

 Diluted earnings per share                      $67,382    308,947     $0.22          $63,403    316,474    $0.20
                                               ==========   =========  ======         ==========  =========  =====

</TABLE>
<TABLE>



                                                         Six Months                            Six Months
                                                    Ended June 30, 2003                   Ended June 30, 2002
                                              --------------------------------       ------------------------------
CONTINUING OPERATIONS:                         INCOME       SHARES      EPS           INCOME      SHARES     EPS
----------------------                        --------     --------   ------         --------    --------   ------
<S>                                             <C>        <C>         <C>            <C>         <C>        <C>
 Basic earnings per share                       $70,862    297,307     $0.24          $74,066     300,653    $0.25
                                                                       =====                                 =====
 Effect of dilutive securities - options                     3,881                                  7,047
                                              --------     --------                  --------    --------

 Diluted earnings per share                     $70,862    301,188     $0.24          $74,066     307,700    $0.24
                                              ==========   =========  ======         ========    ========    =====

</TABLE>


NOTE 7: In 2003, the Company  adopted SFAS 145,  "Rescission of FASB  Statements
No.  4,  44  and  64,   Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections".  The primary impact to the Company of SFAS 145 is that it rescinds
SFAS 4 which required all material gains and losses from the  extinguishment  of
debt to be classified as  extraordinary  items.  SFAS 145 requires that the more
restrictive  criteria of Accounting  Principles  Board Opinion No. 30 be used to
determine whether such gains or losses are extraordinary.  In the second quarter
of 2002, the Company  recorded an  extraordinary  loss of $.03 per diluted share
($15 million  pretax,  $9 million  after-tax) from the early  extinguishment  of
debt. As a result of the Company's  adoption of SFAS 145 in 2003,  this loss has
been  reclassified  into  interest  expense,  thereby  reducing  the  previously
reported 2002 diluted earnings per share from continuing  operations by the same
amount.

Beginning  in 2003,  the Company is  accounting  for employee  stock  options as
compensation  expense in accordance  with SFAS 123,  "Accounting for Stock-Based
Compensation."  SFAS 148 "Accounting  for Stock-Based  Compensation - Transition
and Disclosure,  an amendment of FASB Statement No. 123",  provides  alternative
methods  of  transitioning  to the fair value  based  method of  accounting  for
employee  stock  options  as  compensation  expense.  The  Company  is using the
"prospective method" of SFAS 148 and is expensing the fair value of new employee
option  grants  awarded  subsequent  to  2002.  If  the  Company  continues  its
historical   pattern  of  option   granting,   the  impact  is  expected  to  be
approximately  $.005 per share in 2003,  growing to approximately $.03 per share
over five years.

Prior to 2003,  the Company  accounted  for  employee  share  options  under the
intrinsic  method of  Accounting  Principles  Board Opinion No. 25, as permitted
under GAAP. Had compensation  expense for employee options been determined under
the fair value based  method of SFAS 123,  proforma  reported net income and net
earnings per share would reflect the following:

                                       8
<PAGE>

<TABLE>


                                                     Three Months Ended                     Six Months Ended
                                                          June 30,                              June 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA)              2003               2002               2003              2002
                                              -----------------------------------     -------------------------------

<S>                                                  <C>                <C>                <C>               <C>
Net income as reported                               $65,550            $62,503            $70,225           $74,144

Add back:  Stock-based compensation
  expense included in reported net income,
  net of related tax effects                             313                  -                477                 -

Deduct:  Total stock-based compensation
  expense   determined   under   fair  value
  method, net of related tax effects                  (1,884)            (1,894)            (3,761)           (3,788)
                                              ---------------        ------------     --------------       -----------
Proforma net income                                  $63,979            $60,609            $66,941           $70,356
                                              ===============        ============     ==============       ===========

Basic Earnings Per Share:
  As reported                                          $0.22              $0.21              $0.24             $0.25

  Proforma                                             $0.22              $0.20              $0.23             $0.23

Diluted Earnings Per Share:
  As reported                                          $0.22              $0.20              $0.23             $0.24

  Proforma                                             $0.21              $0.20              $0.22             $0.23


</TABLE>

NOTE 8: In May 2003,  the FASB  issued  SFAS No.  150,  "Accounting  for Certain
Instruments with Characteristics of both Liabilities and Equity". This Statement
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with characteristics of both liabilities and equity. SFAS
150 is effective for financial  instruments  entered into or modified  after May
31, 2003,  and  otherwise is  effective  at the  beginning of the first  interim
period  beginning after June 15, 2003. The Company does not believe  adoption of
this  Statement  will  have a  material  impact  on its  Consolidated  Financial
Statements.

In April 2003,  the FASB issued SFAS No. 149,  "Amendment  of  Statement  133 on
Derivative  Instruments  and Hedging  Activities",  which  amends and  clarifies
financial accounting and reporting for derivative instruments, including certain
derivative  instruments embedded in other contracts,  and for hedging activities
under SFAS 133.  SFAS 149 is effective  for  contracts  entered into or modified
after June 30, 2003,  and for hedging  relationships  designated  after June 30,
2003. The  provisions of SFAS 149 are not expected to have a material  impact on
the Company's Consolidated Financial Statements.

In January 2003, the FASB issued FASB  Interpretation No. 46,  "Consolidation of
Variable  Interest  Entities"  (FIN  46).  Under  this  Interpretation,  certain
entities known as "Variable Interest Entities" (VIE) must be consolidated by the
"primary  beneficiary"  of the entity.  The  primary  beneficiary  is  generally
defined as having the  majority of the risks and rewards  arising  from the VIE.
For VIE's in which a significant (but not majority)  variable  interest is held,
certain  disclosures  are  required.  The  Company  is  required  to  apply  the
requirements   of  FIN  46  starting  with  its  third  quarter  2003  financial
statements.   The   Company   is   presently   assessing   the  impact  of  this
Interpretation;  however,  it is not  expected to have a material  impact on the
Consolidated  Financial  Statements.  Based on  information as of June 30, 2003,
adoption of this Interpretation in 2003 could result in approximately $5 million
to $60 million of real estate  operating  leases  being  included on the balance
sheet as assets with associated debt.


NOTE 9: In the Condensed Consolidated Statements of Cash Flows, the caption Cash
and  Cash  Equivalents   includes   investments  in  short-term,   highly-liquid
securities having a maturity of three months or less.  Supplemental  information
relating  to the  Condensed  Consolidated  Statements  of Cash Flows for the six
months ended June 30, 2003 and 2002 is presented in the following table:

                                                (IN THOUSANDS)
                                              2003         2002
                                          ----------   ----------
CASH PAID OR (RECEIVED) FOR:
Interest expense.......................  $   30,799   $   60,338
Interest and dividend income...........  $   (4,353)  $   (6,108)
Income taxes...........................  $    3,409   $   31,294

The 2002 interest paid includes $15 million related to the early  extinguishment
of debt. The remaining decrease in interest paid reflects reduced debt levels in
2003.  The tax  payment  in  2002  resulted  from  the  gain on the  sale of the
Management Services business.


                                       9
<PAGE>



NOTE 10: Total comprehensive  income was $71.9 million and $57.7 million for the
three months ended June 30, 2003 and 2002,  respectively  and $75.3  million and
$70.9  million for the six months  ended June 30,  2003 and 2002,  respectively.
Total comprehensive income includes primarily net income,  changes in unrealized
gains and losses on  marketable  securities  and  foreign  currency  translation
balances.

NOTE 11: The Company has an agreement  which provides for the ongoing  revolving
sale of a  designated  pool of  accounts  receivable  of TruGreen  ChemLawn  and
Terminix to a wholly-owned,  bankruptcy-remote subsidiary, ServiceMaster Funding
LLC.  ServiceMaster  Funding LLC has entered into an agreement to transfer, on a
revolving  basis,  an  undivided  percentage  ownership  interest  in a pool  of
accounts receivable to unrelated third party purchasers.  ServiceMaster  Funding
LLC retains an undivided  percentage interest in the pool of accounts receivable
and bad debt losses for the entire  pool are  allocated  first to this  retained
interest.  At June 30, 2003 and 2002,  there were no  receivables  sold to third
parties under this agreement.  However,  the Company may sell its receivables in
the future which would provide an additional  funding source. The agreement is a
364-day facility that is renewable at the option of the purchasers.  The Company
may sell up to $65 million of its receivables to these  purchasers in the future
and therefore has immediate access to cash proceeds from these sales. The amount
of the eligible  receivables  varies during the year based on seasonality of the
business and will at times limit the amount available to the Company.

NOTE 12: In October 2001, the Company's Board of Directors  approved a series of
strategic  actions which were the culmination of an extensive  portfolio  review
process  that was  initiated  in the  first  quarter  of  2001.  As part of this
portfolio  review,   the  Company  sold  or  exited  certain   non-strategic  or
under-performing  businesses in the fourth  quarter of 2001 and third quarter of
2002.  The results of these  discontinued  business  units have been  separately
classified  as   "Discontinued   Operations"  in  the   accompanying   financial
statements.

The  Company  continues  to carry  certain  assets on its  financial  statements
relating  to these  operations.  Management's  intent  is to sell the  remaining
equipment and collect the outstanding receivables. The Company believes that the
remaining  assets are  presented  at their net  realizable  value.  In addition,
reserves and accrual  balances  remain on the financial  statements  relating to
these  operations.  Cash  payments  in the first six  months of 2003  include an
adjustment to the sales price of a prior year disposition  which was expensed in
2002. The remaining balances are outlined in the table below.

In the  fourth  quarter  of  2001,  the  Company  recorded  a charge  for  asset
impairments  and  other  items  which  included   accruals  for  residual  value
guarantees on leased properties,  severance for former executives and terminated
employees, and other costs.

The table below  summarizes  the  activity  during the six months ended June 30,
2003 for the remaining  liabilities  from the  discontinued  operations  and the
reserves for items recorded in the fourth quarter of 2001. The Company  believes
that the remaining reserves continue to be adequate and reasonable.

<TABLE>


(IN THOUSANDS)                        Balance at          Cash                         Balance at
                                     December 31,       Payments        Income/         June 30,
                                         2002           or Other       (Expense)          2003
                                    ---------------   -----------    ------------    --------------
<S>                                     <C>             <C>              <C>             <C>
Remaining liabilities from
  discontinued operations
     LandCare Construction              $14,000         $4,400              $ -           $9,600
     Certified Systems, Inc.             13,600          1,200                -           12,400
     Management Services                  1,600          1,200                -              400
     International businesses            21,400          9,900           (1,000)          12,500
     Other                               10,400            500                -            9,900
Reserves related to strategic
  actions in the fourth
  quarter of 2001                       $15,500         $2,300              $ -          $13,200

</TABLE>


NOTE 13:  The  business  of the  Company is  conducted  through  five  operating
segments:   TruGreen,   Terminix,   American  Home  Shield,  ARS/AMS  and  Other
Operations.  In accordance with Statement of Financial  Accounting Standards No.
131, the Company's  reportable  segments are strategic business units that offer
different  services.  The TruGreen segment  provides  residential and commercial
lawn care and landscaping  services  through the TruGreen  ChemLawn and TruGreen
LandCare  companies.  The  Terminix  segment  provides  termite and pest control
services to  residential  and  commercial  customers.  The American  Home Shield
segment  provides  home  warranties to consumers  that cover HVAC,  plumbing and
other home systems and  appliances.  This segment also includes home  inspection
services  provided by


                                       10
<PAGE>


AmeriSpec.  The ARS/AMS  segment  provides  HVAC and plumbing  installation  and
repair  services  provided under the ARS Service  Express,  American  Mechanical
Services and Rescue Rooter brand names.  The Other  Operations  segment includes
the franchise  operations of ServiceMaster  Clean and Merry Maids, which provide
disaster restoration and cleaning services as well as the Company's headquarters
operations  which  provides  various  technology,  marketing,  finance and other
support services to the business units. Segment information is presented below.

<TABLE>


(IN THOUSANDS)                          Three Months         Three Months             Six Months            Six Months
                                       Ended June 30,       Ended June 30,          Ended June 30,        Ended June 30,
                                            2003                 2002                    2003                  2002
----------------------------------------------------------------------------------------------------------------------
Operating Revenue:
<S>                                       <C>                  <C>                     <C>                   <C>
  TruGreen                                $455,449             $434,279                $681,318              $663,422
  Terminix                                 260,588              256,652                 486,494               476,925
  American Home Shield                     126,149              116,440                 220,373               202,356
  ARS/AMS                                  172,977              192,079                 324,410               357,170
  Other Operations                          37,466               35,487                  73,699                69,327
----------------------------------------------------------------------------------------------------------------------
Total Operating Revenue                 $1,052,629           $1,034,937              $1,786,294            $1,769,200
======================================================================================================================

Operating Income:
  TruGreen                                 $67,723              $67,920                 $58,893               $74,444
  Terminix                                  41,897               44,289                  75,425                82,225
  American Home Shield                      23,162               17,834                  31,321                21,189
  ARS/AMS                                    3,838               10,191                   2,668                 7,305
  Other Operations                        (12,040)              (5,558)                (18,866)              (10,791)
----------------------------------------------------------------------------------------------------------------------
Total Operating Income                    $124,580             $134,676                $149,441              $174,372
======================================================================================================================

</TABLE>

<TABLE>


                                                                         As of                    As of
                                                                     June 30, 2003            Dec. 31, 2002
-------------------------------------------------------------------------------------------------------------

Identifiable Assets:
<S>                                                                   <C>                        <C>
  TruGreen                                                            $1,179,097                 $1,070,031
  Terminix                                                               833,006                    841,437
  American Home Shield                                                   397,118                    376,059
  ARS/AMS                                                                480,685                    489,366
  Other Operations (and discontinued businesses)                         546,706                    638,045
-------------------------------------------------------------------------------------------------------------
Total Identifiable Assets                                             $3,436,612                 $3,414,938
=============================================================================================================

</TABLE>







                                       11
<PAGE>





    MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                                   OPERATIONS


RESULTS OF OPERATIONS

SECOND QUARTER 2003 COMPARED TO SECOND QUARTER 2002

CONSOLIDATED REVIEW

Revenue for the second  quarter of 2003 was $1.05  billion,  two  percent  above
2002. Second quarter 2003 diluted earnings per share was $.22 compared with $.20
in 2002.  In  2002,  the  Company  adopted  Statement  of  Financial  Accounting
Standards (SFAS) 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment
of FASB Statement No. 13, and Technical  Corrections".  SFAS 145 rescinds SFAS 4
that required all material gains and losses from the  extinguishment  of debt to
be classified as extraordinary items. In the second quarter of 2002, the Company
recorded an extraordinary loss of $.03 per diluted share ($15 million pretax, $9
million  after-tax)  from the early  extinguishment  of debt. As a result of the
Company's adoption of SFAS 145 in 2003, this loss was reclassified into interest
expense,  thereby  reducing the  previously  reported 2002 diluted  earnings per
share from continuing operations by $.03.

Operating  income for the second  quarter  was $125  million,  compared  to $135
million in 2002.  The decrease in operating  income  reflects  continued  strong
results at American Home Shield and increased lawn care  production at TruGreen,
offset by  reduced  service  volume  in the  ARS/AMS  segment,  the  impacts  of
unfavorable  weather and  economic  conditions  in the Terminix  operations  and
reduced profitability in the TruGreen LandCare operations.

Cost of services  rendered and products sold for the quarter was consistent with
the level in 2002 and  decreased as a  percentage  of revenue to 64.5 percent in
2003 from 65.7 percent in 2002.  This  decrease  reflects a change in the mix of
the business as American Home Shield,  TruGreen ChemLawn and Terminix  increased
in size in relationship to the overall business of the Company. These businesses
generally  operate at higher gross margin  levels than the rest of the business,
but incur somewhat higher selling and administrative expenses as a percentage of
revenue.  Selling and administrative expenses increased 13 percent and increased
as a  percentage  of revenue to 23.5  percent  for the quarter in 2003 from 21.0
percent in 2002. The increase in selling and  administrative  expenses primarily
reflects  the change in  business  mix  described  above,  as well as  increased
expenditures on sales and marketing.

Net  interest   expense   decreased  $22  million  from  2002,   reflecting  the
aforementioned reclassification of the $15 million extraordinary loss in 2002 as
well as lower  interest  expense  resulting  from reduced debt levels and higher
interest income.  The tax provision in 2003 reflects a higher effective tax rate
than  the  prior  year as the 2002  rate  included  the  one-time  benefit  from
utilizing the prior year net operating losses of the ServiceMaster  Home Service
Center operations.

OUTLOOK

In spite of difficult conditions,  the Company continues to target 2003 earnings
in the range of $.56 per share, reflecting increased costs of approximately $.04
to $.05 per share from higher  healthcare and insurance costs and $.03 per share
from a higher  tax rate,  partially  offset by $.04 to $.05 per share in savings
generated by the  Company's Six Sigma and strategic  sourcing  initiatives.  The
Company is instituting  additional cost and wage controls to keep it on track to
meet its  expectations  for the year. The Company's  ability to hit its earnings
target depends on disciplined  selling and field execution and a moderate upturn
in the  economy  during the second  half.  While  working to deliver  short-term
performance, the Company is simultaneously working to improve top-line growth by
building  compelling  brand  positions,  deepening  geographic  penetration  and
expanding its access to customers through multiple channels.



                                       12
<PAGE>



SEGMENT REVIEW

The TruGreen segment includes lawn care operations  performed under the TruGreen
ChemLawn  brand  name and  landscape  maintenance  services  provided  under the
TruGreen  LandCare  brand name.  The TruGreen  segment  reported  second quarter
revenue  of $455  million  in 2003,  a five  percent  increase  over  2002.  The
segment's  operating  income of $68 million was consistent  with the prior year,
reflecting  solid growth in the lawn care  operations  offset by declines in the
landscape maintenance and utility line clearing operations.  Revenue in the lawn
care  operations  increased  eight  percent for the second  quarter,  reflecting
substantially  increased  production levels resulting from the recapture of some
of the revenue that was delayed in the first quarter.  First quarter  production
was delayed due to late spring  snowfalls  and cool  weather  conditions  in the
central,  mid-Atlantic  and eastern  regions of the  country.  In the  landscape
maintenance business, revenue decreased one percent during the second quarter of
2003 compared with 2002, reflecting a reduced level of enhancement sales (higher
priced  discretionary  services such as seasonal flower  plantings),  which have
been impacted by the weak economy. In the lawn care operations, operating income
grew reflecting the increased  production,  however,  margins declined primarily
due to higher direct costs from the increased  level of production and increased
insurance  and  fuel  costs.  Overall  sales  and  marketing  costs  have  risen
reflecting  the  efforts  in   non-telemarketing   channels.   Restrictions   on
telemarketing,  TruGreen ChemLawn's primary sales channel,  continue to increase
and the Company has implemented changes in its marketing, operations and service
to address these restrictions. The Company has reallocated marketing spending to
direct mail, television and community-based  affiliations.  In addition, in late
2001,  the Company  implemented  quality of service  initiatives  to improve the
retention of existing  customers.  Operating  income margins in the  landscaping
business declined  reflecting  substantially  lower profitability in the utility
line clearing  operations  and increased  sales costs.  Capital  employed in the
TruGreen  segment  increased  two  percent  to $1.08  billion  at June 30,  2003
compared  with $1.06  billion at June 30,  2002,  primarily  reflecting  tuck-in
acquisitions.  Capital  employed is defined as the  segment's  total assets less
liabilities,  exclusive of debt balances. The Company believes these figures are
useful to  investors  in helping  them  compute  return on capital  measures and
therefore better understand the performance of the Company's business segments.

The Terminix segment, which includes termite and pest control services, reported
a two  percent  increase in second  quarter  revenue to $261  million  from $257
million in 2002 and operating  income of $42 million  compared to $44 million in
2002.  Revenue  growth was supported by an increase in renewals of higher priced
termite  bait  contracts  and  stronger  growth in the  commercial  pest control
customer base. This growth,  however, was partially offset by fewer sales of new
termite  contracts  which the Company  attributes to the abnormally cool weather
conditions.  The cool conditions  impeded the termite swarm which generates most
of the lead flow in the second quarter.  The Company is less reliant on swarming
activity in later months of the year.  Operating  income  margins  declined from
2002 and were impacted by a reduction in the volume of new termite customers, as
well as the incremental costs associated with Terminix's new information system.
This decline was partially offset by a decrease in damage claims expense of $5.6
million relating to the acquired Sears damage claim liability.  Capital employed
at June 30,  2003 was $578  million,  consistent  with $581  million at June 30,
2002.

The American  Home Shield (AHS)  segment,  which  provides  home  warranties  to
consumers  that cover HVAC,  plumbing  and other home  systems  and  appliances,
reported an eight percent  increase in revenue to $126 million from $116 million
in 2002 and 30 percent growth in operating  income to $23 million  compared with
$18 million in 2002.  The  increase  in revenue  was driven by strong  growth in
renewal contracts, partially offset by a lower level of sales in the real estate
channel  which was  impacted  by a decline  in the number of  listings  in AHS's
markets. Operating margins improved significantly reflecting a lower claims rate
and favorable  trending of prior year claims. AHS has benefited from the weather
patterns that  negatively  affected  Terminix and the ARS/AMS  segment.  Capital
employed  increased 34 percent to $119 million at June 30, 2003  compared to $89
million at June 30, 2002,  reflecting volume growth in the business as well as a
higher level of cash  investments.  The calculation of capital  employed for the
AHS segment includes  approximately  $149 million and $116 million of cash, cash
equivalents and marketable  securities at June 30, 2003 and 2002,  respectively.
The interest and gains/losses on these  investments are reported below operating
income as non-operating income/expense.

The ARS/AMS segment  provides direct HVAC and plumbing  installation  and repair
services under the ARS Service Express,  Rescue Rooter, and American  Mechanical
Services (for large  commercial  accounts)

                                       13
<PAGE>


brand names.  Second quarter revenue totaled $173 million in 2003, a decrease of
10 percent from $192 million in 2002.  Economic  conditions  and cooler  weather
have affected this business along with the entire HVAC and plumbing  industries.
The decline in revenue reflects a reduced level of HVAC construction  revenue in
both  the  residential  and  commercial  sectors,  as well as  decreases  in the
plumbing and HVAC service lines,  partially offset by modest improvement in HVAC
add-on/replacement  activity.  The  increased  add-on/replacement  activity  and
strong  increases  in the backlog of its  commercial  business  are  encouraging
factors.   Second  quarter   operating  margins  declined  compared  with  2002,
reflecting  the  decrease  in revenue  and an  increase  in sales and  marketing
expenditures.  Capital employed  decreased seven percent to $387 million at June
30, 2003  compared  with $417 million at June 30, 2002,  as working  capital and
equipment  have been  managed down to reflect the size of the  business.  In the
third quarter,  management will conduct a review of certain branches in order to
determine  their  profit  potential.  Based  on  this  review,  under-performing
branches may be closed or certain  activities exited. The outcome of this review
may lead  management  to complete  an  assessment  of its  goodwill in the third
quarter in accordance with SFAS 142.

The Other Operations segment includes the Company's  ServiceMaster  Clean, Merry
Maids,  and  international  operations  as well as its  headquarters  functions.
Segment  revenue  of $37  million  in 2003  compared  with $35  million in 2002,
primarily reflecting the impact of acquisitions at Merry Maids and growth in the
ServiceMaster Clean business,  primarily in disaster restoration services.  This
segment  reported an operating  loss of $12 million in 2003 compared with a loss
of $6  million  in 2002,  reflecting  continued  strong  growth in the  combined
franchise  operations  offset by increased  expenditures  related to  marketing,
technology,  and  regulatory/compliance  initiatives.  Capital  employed in this
segment decreased  significantly,  primarily  reflecting an increase in deferred
tax liabilities and a reduction in cash balances.


RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO JUNE 30, 2002

CONSOLIDATED REVIEW

Revenue  for the six months in 2003  increased  one  percent  to $1.79  billion.
Diluted  earnings  per  share  from  continuing  operations  were  $.24 for both
periods. As discussed in the three-month  comparison,  the Company's adoption of
SFAS 145 in 2003 has resulted in the  reclassification  into interest expense of
the $.03 per diluted share extraordinary loss recorded in 2002, thereby reducing
the  previously  reported  2002  diluted  earnings  per  share  from  continuing
operations to $.24 for the six months.

Operating income was $149 million in 2003, compared to $174 million in 2002. The
decline in profitability  reflects strong growth at American Home Shield, offset
by  decreases  in  TruGreen's  landscaping  operations  from  lower  enhancement
activity  and reduced  profitability  in the utility line  clearing  operations,
higher  sales  costs as well as  labor-related  costs in  TruGreen's  lawn  care
operations  resulting  from  weather-related  delays  earlier  in the year,  and
reduced  lead flow at  Terminix  as cooler  temperatures  significantly  reduced
termite swarms and pest activity.

Cost of services  rendered  and  products  sold  increased  slightly for the six
months and  decreased  as a  percentage  of revenue to 68.1 percent in 2003 from
68.5 percent in 2002  reflecting the business mix shift  described in the second
quarter discussion. Selling and administrative expenses increased 10 percent and
increased as a  percentage  of revenue to 23.3 percent in 2003 from 21.4 percent
in 2002 as a result  of the  change  in the mix of the  business  and  increased
expenditures relating to sales and marketing,  enterprise-wide  technology,  and
regulatory/compliance initiatives.

Net  interest  expense  for the six  months  decreased  $26  million  from 2002,
reflecting the  reclassification  of the $15 million  extraordinary loss in 2002
into interest expense as well as lower interest  expense  resulting from reduced
debt levels. The tax provision in 2003 reflects a higher effective tax rate than
the prior year as the 2002 rate included the one-time benefit from utilizing the
prior  year net  operating  losses  of the  ServiceMaster  Home  Service  Center
operations.


                                       14
<PAGE>


KEY PERFORMANCE INDICATORS

The table  below  presents  selected  metrics  related  to  customer  counts and
customer  retention  for the three most  profitable  businesses  of the Company.
These measures are presented on a rolling,  twelve-month basis in order to avoid
seasonal anomalies.


                                                    KEY PERFORMANCE INDICATORS
                                                         As of June 30,

                                                      2003             2002
                                                   ---------        ----------
TRUGREEN -
   Growth in Full Program Contracts                      2%              1%
   Customer Retention Rate                            64.1%           64.5%

TERMINIX -
   Growth in Pest Control Customers                      1%             12%
   Pest Control Customer Retention Rate               75.8%           77.5%

   Growth in Termite Customers                          -2%              8%
   Termite Customer Retention Rate                    88.6%           90.1%

AMERICAN HOME SHIELD -
   Growth in Warranty Contracts                          9%             15%
   Customer Retention Rate                            53.2%           53.2%


SEGMENT REVIEW

For the six months,  the TruGreen  segment  reported  revenue of $681 million in
2003,  an increase of three  percent  over 2002.  Operating  income  totaled $59
million compared with $74 million in 2002. In the lawn care operations,  revenue
increased three percent over 2002 reflecting  growth in the number of customers,
which has been supported by tuck-in acquisitions.  Restrictions on telemarketing
activities  continue  to  increase  and  TruGreen  ChemLawn  has  broadened  its
marketing approach through increased  expenditures on direct mail and television
advertising. Sales through non-telemarketing channels doubled this year compared
with the prior  year.  The rolling  twelve-month  retention  rate has  declined,
however, with the increased level of moisture experienced this year, the Company
believes  there is a good chance to show  improving  retention over the next two
quarters  relative to 2002 when dry  conditions  in selected  regions  increased
cancellations.  Revenue in the  landscape  maintenance  business  increased  two
percent for the six months,  reflecting a significant  increase in first quarter
snow removal revenue,  partially offset by a decline in the level of enhancement
sales.  Operating  income margins in the lawn care  operations  declined in 2003
compared  with 2002,  reflecting  higher  sales and  marketing  costs as well as
higher labor related costs resulting from the  underutilization  of labor in the
first quarter due to weather-related delays in production,  as well as increased
insurance costs. Operating income margins in the landscaping operations declined
in 2003  reflecting  substantially  lower  margins in the utility line  clearing
operations, as well as increased insurance costs and higher sales expenditures.

The  Terminix  segment  reported a two  percent  increase in revenue for the six
months to $486  million from $477  million in 2002 and  operating  income of $75
million  compared  to $82  million in 2002.  The growth in revenue  reflects  an
increase in higher  priced bait  contracts in the renewal base.  Adverse  cooler
temperatures  that impacted many southern  regions of the country  significantly
impeded the  development  of the  termite  swarm and other pest  activity.  As a
result,  termite and pest control sales leads declined  significantly during the
six  months.  In  addition,  the  weather  conditions  and the weak  economy are
reflected in the decline in customer  retention rates.  Operating income margins
have decreased reflecting the reduction of new termite sales activity as well as
incremental costs associated with the unit's new information system.

The American Home Shield segment  reported a nine percent increase in revenue to
$220  million  from $202  million in 2002 and  operating  income of $31  million
compared  to $21  million  in 2002.  The  increase  in revenue  reflects  strong
double-digit growth in renewal contracts, partially offset by a reduced level of
sales  through  the real  estate  and direct to  consumer  sales  channels.  The
retention rate is consistent with 2002, as


                                       15
<PAGE>


mortgage  refinancings have resulted in an increase in cancellations in channels
where the  customer's  warranty  payment is included in the mortgage  statement.
Operating  margins  improved  as the  segment  benefited  from a decrease in the
incidence of claims and favorable trending of prior year claims.

The ARS/AMS segment reported revenue for the six months of $324 million in 2003,
a decrease of nine percent  from $357  million in 2002.  The decrease in revenue
primarily reflects a significant reduction in HVAC construction activity as well
as lower  plumbing and HVAC repair  volume,  partially  offset by an increase in
add-on/replacement  HVAC activity. The add-on/replacement  increase is important
as the transaction  includes the sale of a piece of equipment which carries with
it a higher price point and total margin. For the six months,  operating margins
declined reflecting the decrease in revenue and increased  expenditures in sales
and marketing.  As discussed in the second quarter  comparison,  management will
conduct a review of certain  branches in the third quarter in order to determine
their profit potential.  Based on this review,  under-performing branches may be
closed or  certain  activities  exited.  The  outcome  of this  review  may lead
management  to complete an  assessment  of its goodwill in the third  quarter in
accordance with SFAS 142.

The Other  Operations  segment  reported  segment revenue of $74 million in 2003
compared   with  $69  million  in  2002,   reflecting   increases  in  both  the
ServiceMaster Clean and Merry Maids businesses. For the six months, this segment
reported an operating  loss of $19 million in 2003  compared  with a loss of $11
million  in  2002,  reflecting  continued  growth  in  profits  of the  combined
franchise operations,  offset by higher costs related to marketing,  technology,
and compliance initiatives incurred at the headquarters level.

FINANCIAL POSITION

Net cash flow provided from operations for the first six months was $58 million,
compared with $143 million in the previous  year.  The majority of the reduction
was experienced in the first quarter and is largely attributed to a higher level
of working capital usage.  Several items impact the year over year comparison of
the cash flows from operations,  with the largest component being  approximately
$46  million in lower  deferred  revenue,  primarily  associated  with  customer
prepayments in TruGreen ChemLawn (approximately $22 million).  TruGreen ChemLawn
typically receives prepayments from certain customers for the full season in the
fourth  and first  quarters.  In  preparation  for the 2003  season,  prepayment
programs were launched  earlier than the prior year resulting in an acceleration
of  prepayments  (and cash flow) from the first  quarter to the fourth  quarter,
relative to the prior year. The Company has also lowered the prepayment discount
it offers  customers  which resulted in fewer customers  prepaying.  The Company
believes the margin  benefit from a lower  discount  outweighed the benefit from
receiving  payments  earlier.  In addition,  deferred revenue growth at Terminix
decreased reflecting reduced sales growth. Although many businesses continued to
show  improvements  in  receivables  management in 2003,  there was not the same
level of incremental improvement that was experienced in 2002 when both TruGreen
LandCare and ARS made substantial  improvements in their receivable  levels. The
cash flow  comparison  was also impacted by the timing of  insurance,  bonus and
vendor  payments,  with an increased level of payments in 2003 compared to 2002.
Consistent with historical patterns,  the second half of the year is expected to
experience  higher cash flow and the  Company  still  anticipates  its cash from
operations  for the  year  to be  significantly  in  excess  of its net  income.
Management  expects that funds  generated  from  operations  and other  existing
resources will continue to be adequate to satisfy  ongoing working capital needs
of the Company.

Cash and marketable  securities  totaled  approximately $197 million at June 30,
2003,  approximately  $105 million below the level at the beginning of the year.
The Company believes the cash balance will build  significantly  through the end
of the year due to the  seasonally  high  levels  of cash  flow in the third and
fourth quarters.  During 2002, the Company  completed its debt reduction program
announced in October 2001. As a result of strong cash flows and the net proceeds
received from the Company's  2001  dispositions,  total debt has been reduced by
approximately  $1.0 billion over the last two and one-half  years and represents
the  Company's  lowest  debt  levels in six years.  The debt  reduction  program
enabled the Company to lengthen its maturity profile by focusing debt reductions
on  shorter  maturities.  Approximately  68 percent  of the  Company's  debt now
matures beyond five years and 42 percent  beyond  fifteen  years.  The Company's
next significant debt maturity is not until 2005.



                                       16
<PAGE>


The Company  maintains a three-year  revolving credit facility for $490 million,
which will  expire in  December  2004.  As of June 30,  2003 the  Company had no
borrowings outstanding,  but had issued approximately $153 million of letters of
credit  under  the  facility  and,   therefore,   had  unused   commitments   of
approximately  $337  million.  The  Company  also has  $550  million  of  senior
unsecured debt and equity  securities  available for issuance under an effective
shelf  registration  statement.  In  addition,  the Company  has an  arrangement
enabling it to sell,  on a revolving  basis,  certain  receivables  to unrelated
third party purchasers.  At June 30, 2003, there were no receivables outstanding
that had been sold to third parties. The agreement is a 364-day facility that is
renewable  at the  option  of the  purchasers.  The  Company  may sell up to $65
million  of its  eligible  receivables  to these  purchasers  in the  future and
therefore has immediate  access to cash proceeds from these sales. The amount of
eligible receivables varies during the year based on seasonality of the business
and will at times limit the amount  available to the  Company.  The Company also
maintains lease  facilities with banks totaling $95 million that provide for the
acquisition and development of properties to be leased by the Company. There are
residual  value  guarantees  of these  properties  up to 82  percent of the fair
market value of the properties.  At June 30, 2003, there was  approximately  $73
million funded under these  facilities.  Of the $95 million in  facilities,  $80
million  expires  in October  2004 and $15  million  expires  in  January  2008.
Approximately  $15 million of these leases that involve  constructed  properties
have been  included on the balance  sheet as assets with related debt as of June
30, 2003 and  December  31,  2002,  and the balance of the leases are  operating
leases.  The majority of the Company's vehicle fleet is leased through operating
leases.  The lease terms are non-cancelable for the first twelve-month term, and
then are month-to-month  leases,  cancelable at the Company's option.  There are
residual value  guarantees  (ranging from 70 percent to 87 percent  depending on
the  agreement)  on these  vehicles,  which  historically  have not  resulted in
significant  net  payments  to  the  lessors.   At  June  30,  2003,  there  was
approximately $264 million of residual value relating to the Company's fleet.

The following table presents the Company's obligations and commitments:

<TABLE>



                                                          2004 and      2006 and       2008 and
(IN MILLIONS)                        TOTAL     2003         2005          2007        later years
--------------------------------------------------------------------------------------------------
<S>                                  <C>       <C>          <C>            <C>            <C>
Debt balances                        $827      $15          $176           $71            $565
Non-cancelable operating leases (1)   285       36           114            76              59
--------------------------------------------------------------------------------------------------
Total amount                       $1,112      $51          $290          $147            $624

</TABLE>


(1) Includes lease payments and residual value guarantees on leased properties.

There  have been no  material  changes in the terms of the  Company's  financing
agreements  since December 31, 2002. As described in the Company's latest Annual
Report to Shareholders, the Company is party to a number of debt agreements that
require  it  to  maintain  certain  financial  and  other  covenants,  including
limitations on indebtedness  and interest  coverage  ratio.  In addition,  under
certain  circumstances,  the agreements  may limit the Company's  ability to pay
dividends and  repurchase  shares of common  stock.  These  limitations  are not
expected to be a factor in the Company's  future  dividend and share  repurchase
plans.  Failure by the Company to maintain these  covenants  could result in the
acceleration  of the maturity of the debt. At June 30, 2003,  the Company was in
compliance with the covenants  related to these debt agreements and based on its
operating  outlook  for the  remainder  of 2003,  expects to be able to maintain
compliance in the future.

The assets and  liabilities  relating to the  discontinued  operations have been
classified  in separate  captions on the  Condensed  Consolidated  Statements of
Financial  Position.   Assets  of  the  discontinued  operations  have  declined
reflecting  cash  collections on receivables  and the sale of fixed assets.  The
liabilities  from  discontinued  operations  have declined as a result of a cash
adjustment  to the  selling  price  of the  2001  disposition  of the  Company's
European pest control and property services  operations as well as certain other
payments.

Receivables and inventories  increased from year-end levels,  reflecting general
business  growth and increased  seasonal  activity.  Prepaid  expenses and other
assets increased from year-end primarily reflecting pre-season advertising costs
and annual repairs and  maintenance  procedures  that are performed in the first
quarter at  TruGreen  ChemLawn.  These  costs are  deferred  and  recognized  in
proportion  to the contract  revenue  over the  production  season,  and are not
deferred  beyond the calendar  year-end.  Deferred  customer  acquisition  costs
increased reflecting the seasonality in the lawn care operations.  In the winter
and early


                                       17
<PAGE>


spring,  this business sells a series of lawn applications to customers that are
rendered primarily in March through October.  The lawn care operations incur and
defer  incremental  selling  expenses at the beginning of the year that directly
relate to  successful  sales in which the revenues  will be  recognized in later
quarters.  These costs are deferred and recognized in proportion to the contract
revenue over the  production  season,  and are not deferred  beyond the calendar
year-end.  Deferred revenues grew from year-end  reflecting  increased volume in
termite  baiting  contracts and  increased  customer  prepayments  for lawn care
services.

Capital  expenditures,  which include  recurring  capital needs and  information
technology projects, are below prior year levels. In the prior year, there was a
significant  payment  relating to the residual  value  guarantees  for leases on
assisted  living  facilities  that were  subsequently  sold.  The Company has no
material  capital  commitments at this time.  Tuck-in  acquisitions  for the six
months ended June 30, 2003 and 2002 were $21.5 and $9.3  million,  respectively.
The consideration consisted of cash payments and seller financed notes. The 2003
acquisitions occurred primarily at TruGreen ChemLawn.

Total shareholders'  equity was $1.19 billion at June 30, 2003 and $1.22 billion
at December  31,  2002.  The change  reflects  earnings in the first half of the
year, which was offset by cash dividends and share  repurchases.  Cash dividends
paid directly to shareholders  totaled $63 million or $.21 per share for the six
months ended June 30, 2003. In July 2003,  the Company paid a third quarter cash
dividend of $.105 per share and declared a fourth quarter cash dividend of $.105
per share payable on October 31, 2003. This quarterly  dividend payment provides
for an annual payment for 2003 of $.42 per share, a 2.4% increase over 2002. The
Company   approves  its  actual  dividend  payment  on  a  quarterly  basis  and
continually  reviews its dividend  policy,  share  repurchase  program and other
capital structure objectives.  Through the first six months of 2003, the Company
has repurchased $49 million of its shares and anticipates  purchasing $25 to $50
million of additional shares in the second half of 2003.  Decisions  relating to
any future share repurchases will take various factors into  consideration  such
as the Company's desire to maintain  investment grade ratings,  general business
conditions, and other strategic investment opportunities.









FORWARD LOOKING STATEMENTS

THE COMPANY'S FORM 10-Q FILING CONTAINS STATEMENTS CONCERNING FUTURE RESULTS AND
OTHER MATTERS THAT MAY BE DEEMED TO BE  "FORWARD-LOOKING  STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE  SECURITIES  LITIGATION  REFORM ACT OF 1995.  THE COMPANY
INTENDS THAT THESE  FORWARD-LOOKING  STATEMENTS,  WHICH LOOK FORWARD IN TIME AND
INCLUDE  EVERYTHING  OTHER THAN HISTORICAL  INFORMATION,  BE SUBJECT TO THE SAFE
HARBORS   CREATED   BY  SUCH   LEGISLATION.   THE   COMPANY   NOTES  THAT  THESE
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES THAT COULD AFFECT ITS
RESULTS OF  OPERATIONS,  FINANCIAL  CONDITION OR CASH FLOWS.  FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER  MATERIALLY  FROM THOSE EXPRESSED OR IMPLIED IN A
FORWARD-LOOKING  STATEMENT INCLUDE THE FOLLOWING (AMONG OTHERS): EXTREME WEATHER
CONDITIONS THAT AFFECT THE DEMAND FOR THE COMPANY'S SERVICES; COMPETITION IN THE
MARKETS  SERVED BY THE  COMPANY;  LABOR  SHORTAGES  OR  INCREASES IN WAGE RATES;
UNEXPECTED  INCREASES IN OPERATING COSTS, SUCH AS HIGHER INSURANCE,  HEALTH CARE
OR FUEL PRICES;  INCREASED  GOVERNMENTAL  REGULATION OF  TELEMARKETING;  GENERAL
ECONOMIC  CONDITIONS  IN THE UNITED  STATES,  ESPECIALLY AS THEY MAY AFFECT HOME
SALES OR CONSUMER SPENDING LEVELS; TIME AND EXPENSES ASSOCIATED WITH INTEGRATING
AND WINDING DOWN  BUSINESSES;  AND OTHER FACTORS  DESCRIBED FROM TIME TO TIME IN
DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION.




                                       18
<PAGE>








                    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                ABOUT MARKET RISK

The economy and its impact on discretionary consumer spending, labor wages, fuel
costs,  insurance  costs and medical  inflation  rates could be  significant  to
future operating earnings.

The  Company  does  not hold or  issue  financial  instruments  for  trading  or
speculative   purposes.   The  Company  has  entered  into  specific   financial
arrangements  in the normal course of business to manage  certain  market risks,
with a policy of matching  positions  and  limiting  the terms of  contracts  to
relatively short durations.  The effect of financial instrument  transactions is
not material to the Company's financial statements.

The Company  generally  maintains  the majority of its debt at fixed rates (over
95% of total debt at December  31, 2002 and June 30, 2003) and,  therefore,  its
exposure to interest  rate  fluctuations  is not  significant  to the  Company's
results of operations.  The payments on the approximately $73 million of funding
outstanding  under the Company's real estate  operating lease facilities as well
as its  cancelable  vehicle  fleet and  equipment  operating  leases are tied to
floating  interest  rates.  However,  the Company does not expect  interest rate
fluctuations to be significant to the Company's results of operations.

The Company has several debt and lease  agreements  where the  interest  rate or
rent payable under the agreements  automatically  adjust based on changes in the
Company's credit ratings.  While the Company is not currently expecting a change
in its credit  ratings,  based on amounts  outstanding  at June 30,  2003, a one
rating category improvement in the Company's credit ratings would reduce expense
on an annualized  basis by  approximately  $0.8 million.  A one rating  category
reduction  in  the  Company's  credit  ratings  would  increase  expense  on  an
annualized basis by approximately $1.4 million.

The following table summarizes  information  about the Company's fixed rate debt
instruments  as of December 31, 2002 and presents the  principal  cash flows and
related  weighted-average  interest rates by expected  maturity dates.  The fair
value of the  Company's  fixed  rate  debt was  approximately  $880  million  at
December 31, 2002.




                             Expected Maturity Date
                          ---------------------------
                                                                 There-
  (In millions)       2003    2004    2005     2006    2007      after     Total
 -------------------------------------------------------------------------------
 Fixed rate debt      $31     $24     $151     $11     $59       $559      $835
   Avg. Rate          4.2%    4.8%    8.2%     6.0%    6.7%      7.5%      7.2%
 ===============================================================================








                                       19
<PAGE>










                             CONTROLS AND PROCEDURES

The Company's  Chairman and Chief Executive  Officer,  Jonathan P. Ward, and the
Company's  Chief  Financial  Officer,  Steven C.  Preston,  have  evaluated  the
Company's disclosure controls and procedures as of the end of the period covered
by this report.

Messrs.  Ward and Preston have concluded that the Company's  disclosure controls
and  procedures  provide  reasonable  assurance  that the  Company  can meet its
disclosure  obligations.  The Company's  disclosure  controls and procedures are
based  upon  a  roll-up  of  financial  and  non-financial   reporting  that  is
consolidated in the principal  executive office of the Company in Downers Grove,
Illinois.  The reporting process is designed to ensure that information required
to be  disclosed  by the Company in the reports that it files with or submits to
the Commission is recorded,  processed,  summarized and reported within the time
periods specified in the Commission's rules and forms.

There were no changes in the Company's internal control over financial reporting
that  occurred  during  the  Company's  most  recent  fiscal  quarter  that have
materially  affected,  or  are  reasonably  likely  to  materially  affect,  the
Company's internal control over financial reporting.








                                       20
<PAGE>




 PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a)  The Company's 2003 Annual Meeting ("Annual Meeting") of Shareholders was
     held on May 21, 2003 in Chicago, Illinois.

(b)  The following persons were elected as Class of 2006 directors:

NAME                      VOTES FOR       VOTES WITHHELD      BROKER NON-VOTES
------------------       -----------      --------------      ----------------
Herbert P. Hess          223,603,503        13,512,624               N/A
Dallen W. Peterson       223,599,871        13,516,256               N/A
David K. Wessner         224,123,795        12,992,332               N/A

No votes  were  cast for any  other  nominee  for  directors.  The Class of 2004
continuing in office are: Brian Griffiths,  Sidney E. Harris,  James D. McLennan
and Donald G.  Soderquist.  The Class of 2005  continuing in office are: Paul W.
Berezny, Jr., Roberto R. Herencia, Betty Jane Scheihing and Jonathan P. Ward.

Subsequent to the Annual  Meeting,  the Board of Directors  elected John Carl to
the Class of 2006.

(c) The  shareholders  also voted on four proposals at the Annual  Meeting.  The
following  table shows the vote  tabulation  for the shares  represented  at the
meeting:

<TABLE>

                                                     Votes              Votes            Votes            Broker
Proposal                                              For              Against          Withheld         Non-Votes
---------------------------------------------    ---------------    --------------    -------------    --------------
<S>                                                 <C>                <C>               <C>              <C>
Ratification of Deloitte & Touche's
  selection as independent auditor                  229,729,226         6,567,661          819,240               N/A
Approval of the ServiceMaster 2003
  Equity Incentive Plan                             200,426,299        34,925,497        1,764,330               N/A
Approval of the ServiceMaster
  Annual Bonus Plan                                 164,846,308        19,561,496        2,353,105        50,355,217
Shareholder proposal relating to
  Poison Pills                                       91,067,197        89,311,340        6,363,159        50,374,431

</TABLE>


ITEM 6(A): EXHIBITS

EXHIBIT NO.    DESCRIPTION OF EXHIBIT
-----------    -------------------------

31.1           Certification  of Chief Executive  Officer Pursuant to Rule 13a -
               14(a) or 15d - 14(a),  as Adopted  Pursuant to Section 302 of the
               Sarbanes-Oxley Act of 2002

31.2           Certification  of Chief Financial  Officer Pursuant to Rule 13a -
               14(a) or 15d - 14(a),  as Adopted  Pursuant to Section 302 of the
               Sarbanes-Oxley Act of 2002

32.1           Certification of Chief Executive Officer Pursuant to Section 1350
               of Chapter 63 of Title 18 of the United  States Code,  as Adopted
               Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2           Certification of Chief Financial Officer Pursuant to Section 1350
               of Chapter 63 of Title 18 of the United  States Code,  as Adopted
               Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



                                       21
<PAGE>




ITEM 6(B):    REPORTS ON FORM 8-K

A report on Form 8-K was filed on August 5, 2003.  The purpose of the report was
to provide under Item 12, the press  release  issued by the Company on August 5,
2003  announcing  the  preliminary  financial  results for the second quarter of
2003.




                                       22
<PAGE>






                                    SIGNATURE


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Date:  August 14, 2003


           THE SERVICEMASTER COMPANY
           (Registrant)

           By:                    /S/STEVEN C. PRESTON
              ------------------------------------------------------

                                      Steven C. Preston
           Executive Vice President and Chief Financial Officer









                                       23
<PAGE>